ACCT-1106EL Study Guide - Quiz Guide: Digital Evidence, The Seller, Consignee

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Accounting Quiz – Chapters 4,5,6,7 Multiple Choice

Chapter 4:

Revenue Recognition:

Increase in a future economic benefit arising from an increase in an asset or a decrease

in a liability.

Sales or performance effort is substantially complete, amount is measureable and

collection is assured.

Expense Recognition

 Decrease in a future economic benefit arising from a decrease in an asset or an increase

in a liability

 Directly tied to changes in assets and liabilities

Accrual Accounting:

 Transactions affecting the company’s financial statements are recorded in the period in

which the events occur, not when the company pays or receives cash.

Revenue – recorded when earned

Expenses – goods and services are used or consumed

Cash Accounting:

 Revenue is recorded only when cash is received

Expense is recorded only when cash is paid

Chapter 5:

Key for survival of any company is the operating area of cash flow statements; need to have

positive cash flows in this area over the long run in order to survive.

A cash flow statement shall be presented as an integral part of the financial statements for each

period for which financial statements are presented.

Users of an enterprise’s financial statements are interested in how the enterprise generates

and uses cash and cash equivalents. This is the case regardless of the nature of the enterprise’s

activities.

General:

Cash flows subject to restrictions (compensating balances) not included in cash and cash

equivalents

Investments may be but only if they have very short maturity dates (3 months or less);

readily convertible to cash and low risk of changes in value

Equity investments are not included

Bank balances are normally financing unless they are bank overdrafts, repayable on

demand and balances fluctuate frequently; are then part of cash and cash equivalents

Components:

Operating Activities

oDay to day activities

oMay include trading assets

Investing Activities

oPurchase and sale of capital assets (separate)

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oCash advances and loans to other parties

oCash payments to acquire equity or debt instruments

Financing Activities

oCash proceeds from equity investments

oCash proceeds from debentures, loans, notes, bonds, mortgages

oCash repayments on amounts above

oCash payment of dividends and interest charged to retained earnings

Reporting

Two options: Direct or Indirect Method

ASPE & IFRS would prefer the direct method, but most companies use the indirect

method

Non-Cash Items: investing and financing transactions that do not require the use of cash or cash

equivalents should be excluded from a cash flow statement. Such transactions should be

disclosed elsewhere in the financial statements in a way that provides all the relevant

information about these investing and financing activities.

Chapter 6:

Why do we need Internal Controls? We need internal controls to prevent and deter/detect…

theft, errors (both unintentional and intentional), misappropriation of asset, misappropriation

of financial statements.

What do internal controls provide companies with? Ability to achieve reliable financial

reporting, effective and efficient operations, compliance with laws and regulations, segregation

of duties/ability to detect inconsistencies in financial information.

Primary Components:

Control environment

oOrganization values integrity; unethical behavior is not permitted

Risk assessment

oIdentify business risks and how to manage them

Control activities

oReduce occurrence of fraud; design policies and procedures to address specific

risks

Authorization

Segregation of duties

Documentation

Physical controls

Independence

Information and communication

Monitoring

Internal Control Limitations:

Only provide reasonable assurance

oCollusion

oCost vs benefits

oCompany size

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Controls over Cash collections

oDeposit cash sales on a daily basis into the bank

oCredit card charges – deposited into a bank account – no physical substance

oChecks – no physical substance

oElectronic Funds Transfer (EFT) – no physical substance

Controls over Cash payments

oAuthorization

Dual signatures on checks

Threshold

oSegregation of duties

Individual cutting the check can not also sign the check

oDocumentation

Pre-numbered checks in sequential order

oPhysical control

Daily deposit

Store cash in safes

Limit access

oIndependence

Attach check stub to invoice

Compare

Perform bank reconciliations

oHuman resource controls

Bonded employees

Background checks

Back Reconciliations

Reconciling items per books

oCredit memoranda and other deposits

EFT

oDebit memoranda and other payments

Service charges

NSF check

Reconciling items per bank

oOutstanding checks and

oDeposits in transit

The need for bank reconciliations

oLimitations of the bank reconciliation

oImportance of bank reconciliations

Internal control (but only if done right)

oFrequency

oComplications

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Related Questions

NEED ANSWERS ASAP

Question 23

If a resource has been consumed but a bill hasnot been received at the end of the accountingperiod, then

		an expense should be recorded when the bill is received.
		an expense should be recorded when the cash is paid out.
		an adjusting entry should be made recognizing the expense.
		it is optional whether to record the expense before the bill isreceived.

3 points

Question 24

Prepaid expenses are

		paid and recorded in an asset account before they are used orconsumed.
		paid and recorded in an asset account after they are used orconsumed.
		incurred but not yet paid or recorded.
		incurred and already paid or recorded.

3 points

Question 25

If a business has received cash in advance of services performedand credits a liability account, the adjusting entry needed afterthe services are performed will be

		debit Unearned Service Revenue and credit Cash.
		debit Unearned Service Revenue and credit Service Revenue.
		debit Unearned Service Revenue and credit Prepaid Expense.
		debit Unearned Service Revenue and credit AccountsReceivable.

3 points

Question 26

The preparation of adjusting entries is

		straight forward because the accounts that need adjustment willbe out of balance.
		often an involved process requiring the skills of aprofessional.
		only required for accounts that do not have a normalbalance.
		optional when financial statements are prepared.

3 points

Question 27

On January 1 of the current year, Doolittle Company purchasedfurniture for $7,560. The company expects to use the furniture for3 years. The asset has no salvage value. The book value of thefurniture at December 31of this year is

		$0.
		$2,520.
		$5,040.
		$7,560.

3 points

Question 28

Husker Du Supplies Inc. purchased a 12-month insurance policy onMarch 1 of the current year for $1,800. At March 31, the adjustingjournal entry to record expiration of this asset will include a

		debit to Prepaid Insurance and a credit to Cash for $1,800.
		debit to Prepaid Insurance and a credit to Insurance Expense for$200.
		debit to Insurance Expense and a credit to Prepaid Insurance for$150.
		debit to Insurance Expense and a credit to Cash for $150.

1. Using accrual accounting, revenues are recorded

a. when cash is received without regard to when the services are performed or products have been delivered to customers.

b. when a service has been performed or products have been delivered to customers without regard to when cash is received.

c. when cash is received at the time services are performed or products have been delivered to customers only if cash is received.

d.after the services are performed or products have been delivered to customers.

2. Deferred revenue is revenue that is

a. earned and the cash has been received.

b. earned but the cash has not been received.

c. not earned and the cash has not been received.

d. not earned but the cash has been received.

3. Adjusting entries always include

a. only income statement accounts.

b. only balance sheet accounts the cash account.

c. at least one income statement account and one balance sheet account.

4. Which of the following is considered to be an accrued expense?

a. a computer technician has installed the latest software updates and was paid on the same day

b. a computer technician has been paid in advance to install software updates as they become available

c. a computer technician has just signed an agreement with you regarding pricing for future work

d. a computer technician has installed the latest software updates, but you have not received an invoice or made payment

ochreplatypus211

1. Which of the following identifies the proper order of theaccounting cycle?

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

2. Interim financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three orsix-month periods

B. That are prepared before any adjustments have beenrecorded

C. That show the assets above the liabilities and theliabilities above the equity

D. Where revenues are reported on the income statement when cashis received and expenses are reported when cash is paid

E. Where the adjustment process is used to assign revenues tothe periods in which they are earned and to match expenses withrevenues

3. The accounting principle that requires revenue to be reportedwhen earned is the:

A. Matching principle

B. Revenue recognition principle

C. Time period principle

D. Accrual reporting principle

E. Going-concern principle

4. Adjusting entries:

A. Affect only income statement accounts

B. Affect only balance sheet accounts

C. Affect both income statement and balance sheet accounts

D. Affect only cash flow statement accounts

E. Affect only equity accounts

5. The system of preparing financial statements based onrecognizing revenues when the cash is received and reportingexpenses when the cash is paid is called:

A. Accrual basis accounting

B. Operating cycle accounting

C. Cash basis accounting

D. Revenue recognition accounting

E. Current basis accounting

6. If throughout an accounting period the fees for legalservices paid in advance by clients are recorded in an accountcalled Unearned Legal Fees, the end-of-period adjusting entry torecord the portion of those fees that has been earned is:

A. Debit Cash and credit Legal Fees Earned

B. Debit Cash and credit Unearned Legal Fees

C. Debit Unearned Legal Fees and credit Legal Fees Earned

D. Debit Legal Fees Earned and credit Unearned Legal Fees

E. Debit Unearned Legal Fees and credit Accounts Receivable

7. A company had no office supplies available at the beginningof the year. During the year, the company purchased $250 worth ofoffice supplies. On December 31, $75 worth of office suppliesremained. How much should the company report as office suppliesexpense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 8. OnJanuary 1 a company purchased a five-year insurance policy for$1,800 with coverage starting immediately. If the purchase wasrecorded in the Prepaid Insurance account and the company recordsadjustments only at year-end, the adjusting entry at the end of thefirst year is:

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense,$1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense,$360

D. Debit Insurance Expense, $360; credit Prepaid Insurance,$360

E. Debit Insurance Expense, $360; credit Prepaid Insurance,$1,440

9. Unearned revenue is reported on the financial statementsas:

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

10. Which of the following assets is not depreciated?

A. Store fixtures

B. Computers

C. Land

D. Buildings

E. Vehicles

11. On April 30, 2011, a three-year insurance policy waspurchased for $18,000 with coverage to begin immediately. What isthe amount of insurance expense that would appear on the company'sincome statement for the year ended December 31, 2011? A. $500 B.$4,000 C. $6,000 D. $14,000 E. $18,000 12. Expenses incurred butunpaid that are recorded during the adjusting process with a debitto an expense and a credit to a liability are:

A. Intangible expenses

B. Prepaid expenses

C. Unearned expenses

D. Net expenses

E. Accrued expenses

13 The difference between the cost of an asset and theaccumulated depreciation for that asset is called

A. Depreciation Expense

B. Unearned Depreciation

C. Prepaid Depreciation

D. Depreciation Value

E. Book Value

14. A company purchased a new truck at a cost of $42,000 on July1, 2011. The truck is estimated to have a useful life of 6 yearsand a salvage value of $3,000. How much depreciation expense willbe recorded for the truck for the year ended December 31, 2011?

A. $3,250

B. $3,500

C. $4,000

D. $6,500

E. $7,000

15. A company's Office Supplies account shows a beginningbalance of $600 and an ending balance of $400. If office suppliesexpense for the year is $3,100, what amount of office supplies waspurchased during the period?

A. $2,700

B. $2,900

C. $3,300

D. $3,500

E. $3,700

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ACCT-1106EL Study Guide - Quiz Guide: Digital Evidence, The Seller, Consignee

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